Why Credit Cards Play A Major Part In Your Credit Score?

by | Sep 16, 2019

Credit Cards and They’re affect on Your Credit Score

 

When you think about how credit works and how lenders view your spending habits you’ll begin to see the correlation between credit cards and credit scores. If you’ve ever watched a sitcom, you will see a parent provide a teenager with a credit card for emergency use only, however more often than not the teenager exceeds its intended use. Credit cards comes with a load of responsibility. There is no such thing as free money. What you charge- you pay back with interest. Creditors use your credit spending habits to determine if you will be a big risk.

Creditors are able to view your current spending limit, your purchases for the month, as well as any payments you’ve made on your account. This information is listed on your credit report for you as well as other lenders and creditors to view your likeliness to pay back the money you owe. It is important to note the longer your credit accounts are open plays a role in your credit score as well. Consequently, not having any credit cards can be a hindrance. If there are no open accounts to view payment history and credit utilization how can creditors judge your ability to repay debts. Credit cards are pretty simple to apply for and the easiest way to begin building credit.

Balance-to-Limit Ratio

Balance-to-limit ratio is the contrast between the amount of credit used versus and the credit available to the borrower. This tells lenders how much debt someone is carrying and how much available credit they are using. You’ll also here Balance-to-Limit Ratio referred to as your Credit Utilization rate. Your credit utilization rate accounts for 30% of your overall credit score and is the second most important factor in credit scoring. The lower your utilization rate the better your scores are.

Bottom Line

Credit cards are an easy way for lenders to view your basic monthly spending habits and the ability to repay your debts.

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